Continent's best-run state well placed to make recovery

ANALYSIS: The Chilean quake was stronger than that which struck Haiti, but the country was prepared for such an emergency, writes…

ANALYSIS:The Chilean quake was stronger than that which struck Haiti, but the country was prepared for such an emergency, writes TOM HENNIGAN

THE EARTHQUAKE which struck Chile on Saturday was far more powerful than the tremor which devastated Haiti in January but the country is much better placed to recover than the stricken Caribbean island.

A strong government well prepared for just such an event means the Andean nation starts its recovery from an infinitely stronger position than Haiti, where little planning by a weak state have left it dependent on help from the international community in order to rebuild.

Chile is South America’s best-run country, recently recognised by its admission to the Organisation of Economic Co-operation and Development club of rich nations. With a long history of catastrophic seismic activity, earthquake preparation planning has long been a central part of planning for emergency services.

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The immediate aftermath has exposed some failings in the initial response of authorities with complaints of delays in authorities reaching the worst affected zones. But unlike in Haiti, the state apparatus has remained functioning and Chile’s government has not had to issue emergency appeals for outside help.

While it is now accepting some offers of aid it remains confident that its own rescue and military services have the capacity to lead the search and rescue effort and secure basic services to the worst affected areas.

In part the state has not been overwhelmed because building regulations, which are strictly enforced, mean the death toll is still being counted in the hundreds, though it is predicted to rise as authorities count the toll of the tsunamis that struck coastal regions.

While this still constitutes a national tragedy it is on a far smaller scale than that suffered by Haiti. There the collapse of precarious housing left over two 200,000 people dead and created a calamity which overwhelmed an already feeble state.

Once the immediate relief effort turns to long-term reconstruction Chile should reap the benefits of decades of sound economic management. This is mainly thanks to its position as the world’s leading exporter of copper. During the commodities boom of the last decade Chile saved much of the profits from sales by state-owned mines and taxes on private miners in sovereign wealth funds which now hold over €15.5 billion in assets.

This money was set aside to make up for future pension shortfalls and to maintain government spending in times of weak metal prices. But a portion of these funds will now help the country rebuild. “Where resources are needed there will be funds,” the country’s finance minister, Andrés Velasco, said yesterday.

Copper production, the country’s biggest foreign earner, will only suffer minimal disruption. The biggest copper mines were untouched by the earthquake as they are located in the Atacama Desert in the far north of the country. Several medium-sized mines in the affected region have already restarted production with others closed because of a lack of power but without being damaged.

As well as the sovereign wealth funds, the government will also be easily able to tap capital markets at low rates of interest as its public debt stands at just 6 per cent of GDP. Chile’s economy contracted by almost 2 per cent last year but was projected to grow by up to 5.5 per cent this year. Those projections are now being revised and economists said the earthquake’s aftermath could affect the rhythm of that strong recovery.

A research note from Goldman Sachs said growth could be hit in the first half of the year due to damage to infrastructure and distribution channels. But the investment bank said the economy could receive a boost as the effort to rebuild gather steam with government pouring money into the reconstruction effort.

The disaster means the country’s central bank will likely now delay plans to start raising interest rates from their current low of just 0.5 per cent.

The bank had signalled a rise in the second quarter but might now maintain this fiscal stimulus designed to end last year’s recession in order to help with the recovery from the earthquake.

Recovery will also benefit from the fact that Santiago, the country’s financial and services capital and home to almost a third of the population, emerged relatively unscathed from the tremor. Though hundreds of older dwellings in the historic centre collapsed, the gleaming office towers in the financial district remain standing. The country’s stock exchange opened for business yesterday, dropping just 2 per cent by mid-session.